Personal Contract Purchase (PCP)

With this type of agreement there will also be an option to pay a deposit followed by monthly repayments over a set period of time. In contrast, with this type of agreement and the end of the fixed term you will be able to either hand the vehicle back, use any remaining equity as a deposit towards your next vehicle or obtain full ownership by paying a lump sum known as a ‘balloon payment.’

Another difference is with PCP you may have a mileage cap set by the lender within your agreement. Should you breach the cap, or the vehicle is subject to damage not classed as wear and tear, there may be further charges set by the lender.

Pros

• Lower monthly payments due to final balloon payment at the end of the agreement
• There is flexibility to keep the vehicle or return it at the end of the agreement
• Fixed payments over set period to allow you to budget easily
• Thorough checks are carried out on who you are buying from to ensure they are reputable

Cons

• If you decide to return the car and there are material changes or damages not classed as wear and tear to the vehicle from when initially purchased, then there will be further charges
• Should you keep the car you will have to pay the balloon payment which will be equivalent to the estimated car value at the end of the agreement. You will get this figure before you sign the agreement
• Interest on your balloon payments is included within your monthly payments, regardless of if you are looking to keep the car or not